There Is An Epic Battle Happening Between Musk & The Tesla Haters
October 8th, 2017  Matt Pressman 

In a fascinating article in Institutional Investor, Michelle Celarier writes
that Tesla is: “the biggest short in the U.S. market; about 27 percent of
Tesla’s free float is short, for a value as high as $10 billion” according
to S3 Analytics, a firm that tracks short sales. That said, “the stock has
soared more than 1,300 percent since Tesla went public in 2010. It is the
first automaker to go public since Ford in 1956, making it one of the
darlings of the post-financial-crash bull market.”
[image]   Above: Tesla Model S (Image: Bloomberg)

It turns out that one of the most notorious Tesla shorts is Mark Spiegel.
And Spiegel hasn’t even driven a Tesla yet. He says, “I’m more into sports
cars.” According to Celarier, “Spiegel has become something of a zealot on
Tesla. His small hedge fund, Stanphyl Capital Management, runs a mere $8.5
million, given that it was down 20 percent this year through August. That’s
largely due to his short of Tesla, which had gained 74 percent this year,
making it the worst-performing short of the year.”

However, there are bigger players out there shorting Tesla. Celarier reports
that: “Everyone who’s anyone in Wall Street’s small and clubby world of
short sellers has been short Tesla at one point or another… In the past,
some of them also shorted Google and Amazon — other high flyers who weren’t
making a profit — and somewhat sheepishly (now) admit they were wrong.
Clearly, these guys are not dreamers from California’s La La Land, and
Musk’s grand plans and his ‘save the world’ ethos can elicit a few eye

Another well-known Tesla short, James Chanos of Kynikos Associates, “has
been railing against Tesla for at least two years on CNBC and at numerous
conferences. He has gone so far as to call Tesla a cult.” Speaking of
Tesla’s CEO Elon Musk, Chanos proclaims, “People want to believe he’s some
sort of visionary… In a milieu of boring people, they think he is changing
the world. He’s not boring. He’s somebody they can attach their hopes and
dreams to.”
[image]   Above: Tesla’s CEO Elon Musk (Image: The Australian)

So why does Tesla attract so many arguments on Wall Street? On the one hand,
“Looking at its balance sheet, Tesla is (considered) the perfect short. But
its pioneering status in an industry facing wrenching technological
upheaval, and its charismatic CEO, has won it legions of admirers and turned
it into a battleground stock. Sure, Tesla’s lofty stock price makes it a
risky buy — but also a perilous short.”

Anger and hope permeate both camps of investors. “Short sellers berate Tesla
investors as momentum chasers, tree-huggers, or simply Elon Musk groupies,
but these investors have bought into a vision that has already made great
leaps toward building a sustainable energy ecosystem — a costly endeavor
that has no shortage of well-heeled enemies.”

And while an army of short sellers persist, plenty of Wall Street’s power
players remain steadfast Tesla longs: “The biggest holders, aside from Musk,
are mutual funds like Fidelity Investments, which has owned the stock since
the IPO. With a current 12.8 percent stake (down from a high of 15 percent),
the mutual fund giant is the largest institutional investor in Tesla, and
portfolio manager Kyle Weaver says Fidelity has a long-term perspective on
the company that is playing out largely as expected.”
[image]   Above: The Model S and X fleet lined up outside one of Tesla’s
service centers (Image: Investopedia)

“The internal combustion engine is toast long term. It’s game over. The
costs of making an internal combustion engine do not go down, while the cost
of battery technology has gone down every year,” says Fidelity’s Weaver.
“The secular trends that will drive Tesla’s fundamentals are a decades-long
trend.” He also applauds Tesla’s environmental mission, “I don’t want to bet
against that in an emotional sense.”

“It was the worst short I’ve ever had,” says Whitney Tilson, managing
partner of Kase Capital Management, who was short when the stock went from
$35 to $205. Last month, Tilson told investors he’s shutting down his funds
due to poor performance. Tilson explains, “I can do the numbers and see how
much money the company is losing, but you’re short an incredibly maniacally
driven CEO, with maniacally driven engineers assaulting the world’s largest
industry. If they succeed, Tesla could be a $400 billion market cap

Musk is also not afraid to openly attack Wall Street’s short sellers. Let’s
not forget, “Musk, who has talked about being bullied as a child, seems to
delight in taunting his tormentors. In 2013 he gloated on Twitter, ‘Seems to
be some stormy weather over in Shortville these days,'” and once cautioned
short sellers that a “tsunami of hurt” was coming in a televised interview.

[image]   Above: Back in 2012, Tesla CEO Elon Musk warned short sellers that
a “tsunami of hurt” is coming (Source: Fox Business)

Celarier writes, “To be sure, a mania surrounds Tesla… (and) betting against
Musk is a tough proposition. Tesla has already survived near-bankruptcy
events, and Musk has plenty of friends in tech companies with much higher
valuations, like Larry Page at Google, that could afford to partner with
Tesla or take it over. (Google had struck a handshake deal to buy Tesla
during a near-death moment in 2013, according to Vance’s biography.)”

There’s also massive opportunity for Tesla in China: “Earlier this year,
China’s Tencent Holdings took a 5 percent stake in Tesla. China is proposing
to mandate a zero-emissions standard in 12 percent of new cars by 2020 and
is considering letting wholly owned foreign electric-car companies operate
there. The Chinese market is expected to be huge, and Tesla is charging
ahead there. It is already building a new supercharger network in the
country and plans to both build and sell cars there.”

Such realities make shorting Tesla, for all its financial shortcomings, a
difficult call. As Tilson puts it, “I don’t want to be short open-ended
situations. The tail risk is just too high.”
[© Sustainable Enterprises Media]

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